EBA Guidelines On Credit Institutions' Credit Risk Management Practices And Accounting For Expected Credit Losses

On 20 December 2017, the Commission de Surveillance du Secteur Financier ("CSSF") released CSSF Circular 17/675 ("Circular") in relation to the adoption of the EBA Guidelines on credit institutions' credit risk management practices and accounting for expected credit losses ("EBA Guidelines1"), which the CSSF intends to follow in its capacity as competent authority under the Single Supervisory Mechanism.

The purpose of the EBA Guidelines is to specify sound credit risk management practices for credit institutions associated with the implementation and ongoing application of expected credit loss ("ECL") accounting frameworks.

The key aspects of the EBA Guidelines are described in the Circular and the following points are worth mentioning:

(I) Introduction of eight principles on credit risk management practices and accounting of ECL:

the management body and senior management responsibilities; the implementation of sound ECL methodologies, leading to appropriate and timely ECL accounting frameworks; the existence of processes relating to credit risk rating and the grouping of credit risk exposures; the adequacy of allowances in accordance with the applicable accounting framework; the existence of policies and procedures to appropriately validate models used to measure ECL; the use of experienced credit judgement while assessing credit risk and measuring ECL; the existence of common processes, systems, tools and data to assess credit risk and...